Prolegomena to a Justification of Private Law: Hanoch Dagan Strikes Again

I have taken several swipes at justifying contemporary private law. By private law I mean the legitimacy of deploying coercive state sanctions with respect to matters that are not determined by the state. Given my academic proclivities, this means primarily contract law.

The domain of public law can be identified by looking to a polity's constitution, legislation, and administrative regulations. All of these are public in the sense that everyone has access to them and in the sense that everyone in the polity is bound by them. Individual assent is immaterial. Contemporary justifications for public law are usually found in some sort of social contract theory. The civil government derives its authority from the consent, loosely understood, of the governed.

There are a variety of problems with the nature of what passes for public law today (it's extraordinary volume being one). There are even more problems with contractarian justifications for public law. But these problems are compounded when it comes to private law. In other words, where does the public authority find the warrant to provide state-backed sanctions for breach of private agreements?

I provided my answer in Principled Pluralism and Contract Remedies, which you can download here. My solution, however, invokes doctrines of God, the image of God in human beings, and sin, all of which are generally deemed to fall outside the scope of the sorts of "public reasons" that can be advanced in contemporary Western political discourse.

For a different approach to the "problem" of private law, go here to download Hanoch Dagan's latest piece, The Challenge of Private Law. This is the fifth time I've posted something in connection with Dagan's work. For the two most relevant to this latest post go here and here.

I regularly recur to Dagan because he regularly presents the best of liberal thinking on the topics he addresses. And it is certainly important that, even where we must ultimately part ways with a point of view, we do so only after considering the epitome of its presentation.

In any event, here is the agenda posed by Dagan:

Private law, like law more generally, is a justificatory practice: because law claims to have the legitimate authority over monopolized power in society, its carriers must always justify its prescriptions and should moreover seek to further improve the law so that it lives up to its implicit and often imperfectly executed promises. This means that an important source of law’s challenges comes from within; that at least a subset of the challenges of private law is dependent upon the value of private law. My efforts in this Essay will follow this path: I will offer a normatively attractive conception of private law and will seek to identify the challenges this conception presents to the various legal actors who participate in the evolution of private law or affect its development.

For what it's worth, I think Dagan succeeds in fleshing out an autonomy-based theory of private law (which, in my opinion, is the quintessential liberal theory) with due recognition of the contemporary social context and innately social character of human beings:

Private law – either common law or equity; judge‐made law or statutory – establishes ideal frameworks for respectful interaction between self‐determining individuals,which are indispensable for a society where all recognize one another as genuinely free and equal agents. Only private law – the law of our interpersonal (horizontal) relationships – can form and sustain the variety of frameworks necessary for our ability to lead our chosen conception of life.

What Dagan does not address, and which liberalism alone cannot justify, is why we should care about "respectful" interaction, how and what it means to be "genuinely free," and in what senses we are (and are not) "equal." I am all for respect, freedom and equality but fail to see how even a nuanced approach like Dagan's makes recognition of such virtues obligatory.

To be fair to Dagan, he posits only that such commitments are what constitutes the current liberal order; he does not presume to address the ontological foundation of that order. That said, Dagan's piece is excellent. He acknowledges the indispensability of private law for human flourishing as well as the pedagogy toward maturity that a wide space for private law affords. Moreover, Dagan's integration of concerns for material equality into the substance of private law should also give pause to those who reflexively commit only to formal equality as the ne plus ultra of private law.

Preserving Relationships -- A Third Way (Part 2)

Yesterday, I outlined the argument of Hanoch Dagan that enhancing certain relationships justified the restitutionary remedy of disgorgement. Dagan correctly observed that the law awards supra-compensatory damages for a few wrongful actions, in particular, those involving violations of fiduciary and confidential relationships. These relationships involve a higher degree of trust than the typical commercial transaction. Thus, Dagan concludes, it is the law's goal to ensure that people continue to enter into such trusting relationships by forcing the wrongdoer to give back all that has been gained and not merely what was taken, i.e., disgorgement rather than compensation.

I found Dagan's argument interesting because he presented it as an alternative to autonomy- or efficiency-based ones. Unfortunately, I don't see that it's necessary. Both autonomy and efficiency can explain disgorgement and there is no need to posit a third way to justify it. Fiduciary relationships arise from contract but afford one party great discretion. The law remedies breach of the relationship because such relationships are valuable to the parties. It's not the relationship that we protect but the freedom of individuals to enter into it and/or the social welfare created by giving agents such great discretion. Autonomy or efficiency are enough.

Confidential relationships are not contractual but their abuse is usually wrongful, typically fraud, duress, or undue influence. The remedy of disgorgement is justifiable on ordinary tort theories and doesn't need a third way.

Perhaps we can glean a reason for Dagan's interest in moving the relationship rather than the parties to the center of restitution if we consider his lengthy argument in favor of restitution-based claims between cohabitants. "Allowing recovery for a significant asymmetric contribution facilitates the functioning of cohabitation as an intermediate institution, stabilizing and facilitating a relationship of long-term informal intimacy between marriage and arm’s-length dealings," Dagan writes. Clarifying his academic prose, Dagan intends restitution to provide a middle ground of legal protection for cohabitants between the rights of married individuals and the necessity of formalizing the cohabiting relationship through contract (a rather unlikely state of affairs).

I have no dog in this fight except to suggest that state legislatures and not state courts should lead the way in such matters of public policy. I find it interesting, however, that ultimately Dagan develops the relationship trope not so much to explain the existing remedy of disgorgement but to extend it into a new area.

Preserving Relationships -- A Third Way (Part 1)

Hanoch Dagan of Tel Aviv University is a prolific writer on topics related to contract law and its cognates. His most recent piece, Restitution and Relationships (abstract here) exemplifies what I find to be most interesting about his work. Most contemporary efforts in legal theory--an approach external to the law--seek to explain the foundation for a particular body law in one of two flavors: autonomy or utility. (It is this external approach that distinguishes legal theory from legal doctrine; doctrine attempts to rationalize and understand a field of law from an internal perspective.)

Autonomy assumes the perspective that the purpose of law--why it should exist--is to advance the individual's freedom of action. (Law here refers to private law as opposed to "public law" fields like criminal law.) Autonomy has little to say about collective benefits or detriments; only protection of the individual's personal integrity counts. Utility, on the other hand, takes the stance that law's validity rests on its ability to increase net social welfare. With respect to the individual, a utilitarian approach to the law operates to the effect that legal wrongs are okay so long as compensation is paid; no individual loss plus a collective gain justifies legal rules.

Autonomy and utility each have certain virtues in explaining the law that exists but neither can do a complete job alone, nor has anyone figured out a way to combine them consistently and coherently. At least that's what I argued here. Dagan agrees and suggests in his article that "relationships" provide a third way in addition to autonomy and utility that can account for a large area of law known as restitution.

Restitution is a remedy for unjust(ifiable) enrichment. Money damages are typcially awarded for breach of contract. Money damages are also awarded as compensation for a legal wrong, a tort. Restitution is usually awarded in the form of money but not necessarily because someone wronged another and not because someone failed to perform a contractual obligation but because someone was enriched without a good legal reason. The clearest example is restitution for mistake. Most everyone I should think would agree that William A. Macy should send the money back if my check to pay my Macy's bill somehow ended up in his checking account. And further, if he didn't, the law should compel him to do so. That's an example of restitution.

But Dagan has another application of restitution in mind, that which follows upon abuse of a fiduciary or confidential relationship. A fiduciary, like a lawyer, investment advisor, or trustee of a trust has always stood in a unique legal relationship with the client or beneficiary. If a fiduciary breaches a contract by, say, taking money held in trust, the injured client would, of course, have a claim for money damages, just like a run-of-the-mill breach of contract case. Yet, the law goes further and awards not only what was taken but also any gain that what was taken has produced. Thus, if a lawyer takes a client's money and buys some property, the client gets the property even if its value now far exceeds what the lawyer took.

Confidential relationships exist where one person in a close relationship so trusts the other that the other can easily take advantage of the relationship. Typical examples include a child who takes advantage of an elderly parent or parent who connives against an unsuspecting child. Here too the law of restitution gives not only what was taken but that into which it can be traced, all without giving the confidence abuser an offset for expenses. In short, the measure of restitution in both scenarios is disgorgement, not compensation

According to Dagan, neither autonomy nor utility can justify the potential for over-compensation in abuse of fiduciary and confidential relationships. Neither the personal integrity of one suffering at the hands of the dominant party nor promotion of social welfare accounts for disgorgement. Instead, it is the preservation of select relationships that is at stake. By subjecting a dominant abuser to the restitutionary remedy of disgorgement and not merely one of compensation for a wrong, the law does what it can to preserve such relationships.

As Dagan puts it, "by deterring breaches of the fiduciary’s loyalty, restitution plays a crucial role in vindicating the beneficiary’s entitlement to it, thereby preserving the integrity of the fiduciary relationship." The same holds true for confidential relationships. In other words, were it not for the legal remedy of disgorgement, people would be less willing to enter into fiduciary and confidential relationships. Thus, Dagan concludes, it is the relationships themselves and not autonomy or utility that justifies restitution.

Is Dagan correct? Does (should) enhancement of "relationships" justify at least some aspects of private law?